AWMA Practice Exam 2 QUESTIONS
AND VERIFIED CORRECT ANSWERS
GRADED A+ LATEST 100%
GUARANTEED PASS
Statistics from PEW Research show that baby boomers are staying in the workforce later than
the silent and greatest generations did.
Question #9 of 80
Question ID: 1334316
Assume you have the following portfolio:
StockWeightBetaBCD40%1.15EFG25%.90HIJ35%1.05
What is the overall weighted beta for this portfolio?
A)1.053
B)1.105
C)1.127
D)1.011 - CORRECT ANSWER-A
(.4 × 1.15) + (.25 × .90) + (.35 × 1.05) = 1.053. Be sure to keep your calculator at four decimal
places for this course.
,Which industry would be expected to perform well in a recession?
A)Plastics
B)Trucking
C)Machinery Manufacturers
D)Drugs - CORRECT ANSWER-D
Drug industry stocks generally perform well in a recession because the need for drugs exists
regardless of the economy being in a recession. Other consumer staple stocks, such as food,
cosmetics, and so-called "sin" stocks such as tobacco and liquor, can also do well, along with
utility stocks.
Three years ago, Kerri received a gift of 1,000 shares of Mica Inc. common stock from her
parents. The fair market value of the stock on the date of the gift was $20,000. Kerri's parents
purchased the stock several years earlier for $40,000. She sold this stock for $31,000 last week.
What is the amount of gain or loss, if any, from Kerri's stock sale?
A)$0
B)$40,000 gain
C)$9,000 loss
D)$11,000 gain - CORRECT ANSWER-A
Where the fair market value on the date of gift is less than the donor's adjusted basis, and the
asset is sold at a price between the fair market value on the date of gift and the donor's
adjusted basis, there is no gain or loss recognized on the sale. A loss can only be claimed if sold
below the FMV on the date of gift ($20,000), and a gain would only apply to any gain above the
original basis ($40,000).
A funded deferred compensation plan:
A)will provide tax deferral for an employer.
,B)must be made available to all employees.
C)will provide an immediate deduction to an employer.
D)will be taxable to an employee if nonforfeitable. - CORRECT ANSWER-D
Unless the plan benefits are subject to substantial risk of forfeiture provisions, contributions to a
funded nonqualified deferred compensation plan will be constructively received by the
participants and subject to tax, and the employer would be allowed to take a tax deduction.
Oftentimes funded deferred compensation is subject to substantial risk of forfeiture, meaning
the employee will not be taxed, and the employer will not get a tax deduction, until the
employee becomes vested.
Which trust will NOT entitle the grantor to take an annual exclusion upon funding the trust?
A)Bypass trust in which income is paid at the discretion of the trustee
B)Section 2503(c) minor's trust
C)Section 2503(b) mandatory income trust
D)Crummey trust - CORRECT ANSWER-A
For gifts to a trust to be entitled to the annual exclusion, income must be payable on a
mandatory basis (Section 2503(b)), the beneficiaries must be given a general power of
appointment (such as a Crummey power) over the trust assets, or the trust must conform to the
requirements of Section 2503(c).
A bypass trust that gives the trustee discretion over income is not entitled to the annual
exclusion.
Why might a client prefer to form a private foundation rather than a donor-advised fund?
A)To obtain the best tax advantage for the entity
B)To keep the purpose of the entity and its values intact
C)To keep the entity donor(s) private
D)To keep the entity beneficiary(ies) private - CORRECT ANSWER-B
, Though a private foundation is less tax efficient and there is public acknowledgement of donors
and beneficiaries, an individual wanting to permanently set the values of the entity would
choose a private foundation.
Assume the following correlations between long-term government bonds and the following
asset classes:
Small stocks: .17
Foreign stocks: .21
Treasury bills: −.12
Gold: −.25
Which asset class will provide the most diversification with long-term government bonds?
A)Gold
B)Small stocks
C)Treasury bills
D)Foreign stocks - CORRECT ANSWER-A
The asset with the correlation farthest from +1.0 will provide the most diversification. In this
case, it would be gold with its −.25 (correlations range from +1.0 to −1.0).
Which of these would a contrarian investor interpret as a bullish indicator?
A)Bullish specialist sentiment
B)Low put-call ratio
C)Small cash positions in mutual funds
D)Decreased short selling - CORRECT ANSWER-A
AND VERIFIED CORRECT ANSWERS
GRADED A+ LATEST 100%
GUARANTEED PASS
Statistics from PEW Research show that baby boomers are staying in the workforce later than
the silent and greatest generations did.
Question #9 of 80
Question ID: 1334316
Assume you have the following portfolio:
StockWeightBetaBCD40%1.15EFG25%.90HIJ35%1.05
What is the overall weighted beta for this portfolio?
A)1.053
B)1.105
C)1.127
D)1.011 - CORRECT ANSWER-A
(.4 × 1.15) + (.25 × .90) + (.35 × 1.05) = 1.053. Be sure to keep your calculator at four decimal
places for this course.
,Which industry would be expected to perform well in a recession?
A)Plastics
B)Trucking
C)Machinery Manufacturers
D)Drugs - CORRECT ANSWER-D
Drug industry stocks generally perform well in a recession because the need for drugs exists
regardless of the economy being in a recession. Other consumer staple stocks, such as food,
cosmetics, and so-called "sin" stocks such as tobacco and liquor, can also do well, along with
utility stocks.
Three years ago, Kerri received a gift of 1,000 shares of Mica Inc. common stock from her
parents. The fair market value of the stock on the date of the gift was $20,000. Kerri's parents
purchased the stock several years earlier for $40,000. She sold this stock for $31,000 last week.
What is the amount of gain or loss, if any, from Kerri's stock sale?
A)$0
B)$40,000 gain
C)$9,000 loss
D)$11,000 gain - CORRECT ANSWER-A
Where the fair market value on the date of gift is less than the donor's adjusted basis, and the
asset is sold at a price between the fair market value on the date of gift and the donor's
adjusted basis, there is no gain or loss recognized on the sale. A loss can only be claimed if sold
below the FMV on the date of gift ($20,000), and a gain would only apply to any gain above the
original basis ($40,000).
A funded deferred compensation plan:
A)will provide tax deferral for an employer.
,B)must be made available to all employees.
C)will provide an immediate deduction to an employer.
D)will be taxable to an employee if nonforfeitable. - CORRECT ANSWER-D
Unless the plan benefits are subject to substantial risk of forfeiture provisions, contributions to a
funded nonqualified deferred compensation plan will be constructively received by the
participants and subject to tax, and the employer would be allowed to take a tax deduction.
Oftentimes funded deferred compensation is subject to substantial risk of forfeiture, meaning
the employee will not be taxed, and the employer will not get a tax deduction, until the
employee becomes vested.
Which trust will NOT entitle the grantor to take an annual exclusion upon funding the trust?
A)Bypass trust in which income is paid at the discretion of the trustee
B)Section 2503(c) minor's trust
C)Section 2503(b) mandatory income trust
D)Crummey trust - CORRECT ANSWER-A
For gifts to a trust to be entitled to the annual exclusion, income must be payable on a
mandatory basis (Section 2503(b)), the beneficiaries must be given a general power of
appointment (such as a Crummey power) over the trust assets, or the trust must conform to the
requirements of Section 2503(c).
A bypass trust that gives the trustee discretion over income is not entitled to the annual
exclusion.
Why might a client prefer to form a private foundation rather than a donor-advised fund?
A)To obtain the best tax advantage for the entity
B)To keep the purpose of the entity and its values intact
C)To keep the entity donor(s) private
D)To keep the entity beneficiary(ies) private - CORRECT ANSWER-B
, Though a private foundation is less tax efficient and there is public acknowledgement of donors
and beneficiaries, an individual wanting to permanently set the values of the entity would
choose a private foundation.
Assume the following correlations between long-term government bonds and the following
asset classes:
Small stocks: .17
Foreign stocks: .21
Treasury bills: −.12
Gold: −.25
Which asset class will provide the most diversification with long-term government bonds?
A)Gold
B)Small stocks
C)Treasury bills
D)Foreign stocks - CORRECT ANSWER-A
The asset with the correlation farthest from +1.0 will provide the most diversification. In this
case, it would be gold with its −.25 (correlations range from +1.0 to −1.0).
Which of these would a contrarian investor interpret as a bullish indicator?
A)Bullish specialist sentiment
B)Low put-call ratio
C)Small cash positions in mutual funds
D)Decreased short selling - CORRECT ANSWER-A
